DEAR MR. MYERS: We are planning to buy our first home soon, so we are following your advice to get preapproved for a mortgage. However, we have received some conflicting advice from my father and the real estate agent we expect to use. My dad says we should apply for as small of a loan as possible to improve our chances of getting approved. Our agent, though, says we should ask for the highest amount possible, in part to broaden our choices among the properties that are available. What do you think we should do?
ANSWER: Follow the realty agent’s advice, and ask for the highest amount possible.
Buyers always should get preapproved for a mortgage before starting their house-hunting trek, in part because it makes a seller more confident that a proposed deal can be completed successfully and can close quickly. That puts a buyer who has been preapproved is in a lot better bargaining position than a buyer who hasn’t.
In reality, the bank or mortgage broker that you intend to use to finance the transaction will ultimately decide how much you can borrow based on your income, credit score, available down payment and other factors. But your agent is correct: You should ask for the highest amount you can get in order to broaden your property choices, as long as you’re confident that you comfortably can handle the higher monthly mortgage payments that would be required.
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As a bonus, having access to the highest preapproval amount possible gives you a financial cushion to help pay for any unanticipated expenses that seemingly always arise after a sale agreement is tentatively reached -- such as higher-than-expected closing costs -- or to fix up the home after you move in.
DEAR MR. MYERS: Is it true that homeowners in Hawaii can take a tax deduction for each of the trees that grow on their property?
ANSWER: Yes, provided the tree is classified by authorities as an “exceptional tree” based either on its age, size, rareness, historic value or a handful of other criteria. The program was created in 1975 by state legislators in an effort to preserve the island paradise’s unique beauty.
The sizable deductions are nothing to throw a pineapple at. Property owners can take up to a $3,000 income-tax write-off for each of their trees that are deemed exceptional to cover the cost of their maintenance — chores like pruning and fertilizing them.
There are a couple of strings attached. For starters, the deduction can be taken only once every three years. In addition, work must be done by a certified arborist. Nonetheless, more than 1,000 trees have qualified for “exceptional” status since the program began, and the number is growing every year.
REAL ESTATE TRIVIA: Maine legislators levy a special 1.5 cent tax per pound on farmers and dealers who grow or distribute blueberries, the state’s official fruit. The revenue is used to promote the crop and fund agricultural research.
DEAR MR. MYERS: What is considered an “excellent” FICO credit score?
ANSWER: Fair, Isaac Corp., the creator of the FICO score that’s used in about 90 percent of all lending decisions by banks, use a consumer’s past and current financial information to rank them in a range between 301 and 850. The higher, the better — and the lower interest rate that you’ll likely pay for a mortgage, car loan or credit card.
Generally, a FICO score of 750 or more is considered “excellent.” A score of 700 to 749 is “good,” 650 to 699 is “fair,” and 600 to 649 is “poor.” “Bad” credit is anything below 600.
DEAR MR. MYERS: About two months ago, you wrote that the Federal Reserve Board likely would raise short-term interest rates by the end of this year. But at its September meeting, the board decided to leave rates where they are. Does this mean a rate increase is “off the table”?
ANSWER: No. Fed Chairwoman Janet Yellen explained that the board’s September decision to leave rates unchanged was designed to give its policymakers more time to assess the impact of China’s weakened economy and the resulting stock-market turmoil it has created in the U.S. and around the world.
Yellen said that the decision was a “close call,” and added that the central bank still expects to raise rates by the end of the year.
The rate hike could come as early in October, or at the Fed’s following meeting in December. The anticipated quarter-point increase is part of the board’s plan to slowly raise short-term rates to 3 or 4 percent — up from virtually zero today — to curb corporate and consumer borrowing and thus keep the economy from overheating.
David W. Myers’ column is distributed by Cowles Syndicate Inc.